Microsoft ended the fiscal year on a strong note, reporting fourth-quarter profits of $4.52 billion, or 51 cents per share on Thursday.
The software maker beat Wall Street estimates, and also announced its best-ever quarterly revenue of $16.04 billion, an increase of 22 percent from the same quarter a year ago.
Wall Street analysts had been expecting Microsoft's revenue to fall somewhere between $14.85 billion and $15.74 billion.
"We saw strong sales execution across all of our businesses, particularly in the enterprise with Windows 7 and Office 2010," Chief Operating Officer Kevin Turner said in a statement. "Our transition to cloud services is well under way with offerings like Windows Azure and our Business Productivity Online Services, and we look forward to continuing our product momentum this fall with the upcoming launches of Windows Phone 7 and Xbox Kinect."
Microsoft's bump in revenue was due to Windows 7 and Office 2010 selling well, the company said. It's been a good quarter overall for the tech industry, with Intel reporting its most profitable quarter in its history, and IDC data showing PC shipments up 22 percent.
Microsoft's own data shows the PC market up between 22 percent and 24 percent, and the company says emerging markets are "a significant driver of the PC market," increasing their growth by almost twice that of mature markets, Bill Koefoed, general manager of investor relations, said on the earnings call Thursday afternoon.
Windows revenue grew by $1 billion, and consumer and business licenses for the OS increased by 26 percent. "Clearly the Windows franchise is thriving," Koefoed said.
The company's gaming revenue grew 30 percent. However, as expected, Microsoft did incur some costs during the quarter when it decided to ax its Kin smartphone. The Entertainment and Devices Division's cost of revenue increased by $251 million, or 38 percent, during the June quarter as a result of discontinuing the Kin, as well as higher royalty costs associated with Xbox Live content sales.
For the whole year, Microsoft reported record numbers as well: fiscal year 2010 revenue was its best ever at $62.48 billion, a 7 percent rise over 2009, as well as a 29 percent growth in profits, which hit $18.76 billion.
After Apple passed Microsoft in market capitalization earlier this year, analysts had also been expecting Microsoft to fall behind Apple in quarterly revenue for the first time ever. The software maker was able to hold off its rival, besting Apple's $15.7 billion in revenue reported Tuesday.
When asked about the potential for tablets, CFO Peter Klein was upbeat, but vague. "We're very excited about the market. Obviously we're super happy with both the state of the PC market," he said. "Tablets are great because they enlarge the overall opportunity. It reminds us there are lots of interesting new scenarios we're interested to work on."
Looking ahead, Klein said the company expects the business refresh cycle to continue at current levels through 2011, and that Windows revenue should grow at the same rate as PC shipments. Revenue for the Entertainment Devices Division's revenue will grow "in the mid-teens," he said.
This story was updated at 2:56 p.m. PDT.